Comments, observations and thoughts from two left coast bloggers on applied statistics, higher education and epidemiology. Joseph is a new assistant professor. Mark is a marketing statistician and former math teacher.

Sunday, September 18, 2011

Oftentimes, however, I see people on your television programs or your televised debates making reference to the idea that “younger workers” should divert some of our payroll tax money into some kind of private retirement accounts. At this point you, the national political reporter, absolutely must ask them how we’re going to pay current benefits of this happens. What privatizers want to say is that current retirees will keep getting benefits and future retirees will be okay despite our lack of benefits because we’ll have private accounts. But current retirees can’t get benefits if my money is in a private account. And my account can’t be funded if I’m paying benefits for current retirees.

The obvious answers are either a) we will stop paying benefits or b) taxes are about to hit a new and large high as we switch from Paygo to pre-funded accounts. If the answer is a), why do we trust these same people not to play games with the individual accounts when they start to become a major liability (i.e. have to be paid out)? I am not against option b) but it seems to be an unusual direction for the United States to go, and an enormous financial sacrifice for a fairly small policy gain.

I also think that the distinction between lending to the government, via a private savings account, and having a future claim on government revenues is a narrower difference than most people think. After all, playing with the tax rates on withdrawals from these accounts has the same effects as a benefit cut in social security (and both are within the easy ability of the government to accomplish).